The Travelers Companies Beats

The Travelers Companies (TRV) reported 4th Quarter December 2017 earnings of $2.28 per share on revenue of $7.5 billion. The consensus earnings estimate was $1.52 per share on revenue of $7.1 billion. The Earnings Whisper number was $1.66 per share. Revenue grew 3.6% on a year-over-year basis.

•Fourth quarter net written premium growth of 6%; record full year net written premiums of $26.219 billion, up 5%.

•Total capital returned to shareholders of $549 million in the quarter, including $351 million of share repurchases. Full year total capital returned to shareholders of $2.229 billion, including $1.440 billion of share repurchases.

•Book value per share of $87.46 and adjusted book value per share of $83.36, up 5% and 4%, respectively, from year-end 2016.

--Board of Directors declared quarterly dividend per share of $0.72.

The Travelers Companies, Inc. today reported net income of $551 million,
or $1.98 per diluted share, for the quarter ended December 31, 2017,
compared to $943 million, or $3.28 per diluted share, in the prior year
quarter. Net income in the quarter included a charge of $129 million
related to the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). Net
income in the quarter also included net realized investment gains of $70
million pre-tax ($47 million after-tax), as compared to $35 million
pre-tax ($24 million after-tax) in the prior year quarter. Core income
in the current quarter was $633 million, or $2.28 per diluted share,
compared to $919 million, or $3.20 per diluted share, in the prior year
quarter. The decrease in core income was primarily driven by
significantly higher catastrophe losses and a benefit in the prior year
quarter of $126 million pre-tax ($82 million after-tax) from the
settlement of a reinsurance dispute. These impacts to core income were
partially offset by higher net favorable prior year reserve development
in the current quarter. Per diluted share amounts benefited from the
impact of share repurchases.

Consolidated Highlights

($ in millions, except for per share amounts, and after-tax,

Three Months Ended December 31,

Twelve Months Ended December 31,

except for premiums & revenues)

2017

2016

Change

2017

2016

Change

Net written premiums

$

6,424

$

6,058

6

%

$

26,219

$

24,958

5

%

Total revenues

$

7,451

$

7,193

4

$

28,902

$

27,625

5

Net income

$

551

$

943

(42 )

$

2,056

$

3,014

(32 )

per diluted share

$

1.98

$

3.28

(40 )

$

7.33

$

10.28

(29 )

Core income

$

633

$

919

(31 )

$

2,043

$

2,967

(31 )

per diluted share

$

2.28

$

3.20

(29 )

$

7.28

$

10.12

(28 )

Diluted weighted average

275.7

285.1

(3 )

278.6

291.0

(4 )

shares outstanding

Combined ratio

95.5 %

90.0 %

5.5

pts

97.9 %

92.0 %

5.9

pts

Underlying combined ratio

92.4 %

92.0 %

0.4

pts

92.6 %

91.6 %

1.0

pts

Return on equity

9.3 %

15.8 %

(6.5 )

pts

8.7 %

12.5 %

(3.8 )

pts

Core return on equity

11.1 %

16.4 %

(5.3 )

pts

9.0 %

13.3 %

(4.3 )

pts

As of December 31,

2017

2016

Change

Book value per share

$

87.46

$

83.05

5

%

Adjusted book value per share

$

83.36

$

80.44

4

%

See Glossary of Financial Measures for definitions and the

statistical supplement for additional financial data.

"We were pleased to report fourth quarter core income of $633 million
and core return on equity of 11.1%, particularly in light of the high
level of catastrophe losses arising out of the California wildfires,"
commented Alan Schnitzer, Chairman and Chief Executive Officer. "The
consolidated underlying combined ratio remained strong at 92.4% as our
commercial business continued to perform well and results in our
personal auto business improved meaningfully due to the successful
execution of the pricing and underwriting actions we began implementing
a year ago. Our high-quality investment portfolio generated net
investment income of $467 million after-tax, benefiting once again from
strong private equity returns. These results, together with our strong
balance sheet, enabled us to return $549 million of excess capital to
shareholders this quarter, including $351 million of share repurchases.
For the full year, we returned over $2.2 billion to shareholders,
including over $1.4 billion in share repurchases.

"We grew net written premiums by 6% in the quarter, including 5% in our
commercial businesses and 8% in Personal Insurance, as we successfully
executed our marketplace strategies in an improving pricing environment.
In Business Insurance, domestic renewal premium change was 4%, the
highest level in three years. We achieved rate increases more broadly
across our product portfolio while maintaining retention at historically
high levels, and we increased new business levels over the prior year
quarter. In Bond & Specialty Insurance, domestic surety premiums
increased 13% and retention in our domestic management liability
business remained at record highs. In Personal Insurance, we achieved
our dual objectives of double-digit renewal premium change in auto and
continued growth in our industry-leading homeowners business.

"In a year of extremely high catastrophe losses for the industry, our
ability to generate full year core income of $2.043 billion and core
return on equity of 9.0% demonstrates the value of our franchise and our
consistent capital management strategy. From a position of strength, we
continue to invest in our competitive advantages, focusing on extending
our lead in risk expertise, improving the experience for customers,
agents and brokers, and enhancing productivity and efficiency. We are
encouraged by the pricing environment, the opportunities afforded by a
more level playing field for domestic insurers as a result of corporate
tax reform and the prospect of a strengthening economy. We remain well
positioned to continue to deliver shareholder value."

Net income of $551 million after-tax decreased $392 million due to lower
core income and a charge of $129 million related to the passage of the
TCJA, partially offset by higher net realized investment gains. Net
realized investment gains were $70 million pre-tax ($47 million
after-tax), as compared to $35 million pre-tax ($24 million after-tax)
in the prior year quarter. Core income of $633 million after-tax
decreased $286 million, primarily due to the impact of significantly
higher catastrophe losses and a benefit in the prior year quarter of
$126 million pre-tax ($82 million after-tax) from the settlement of a
reinsurance dispute. These impacts to core income were partially offset
by higher net favorable prior year reserve development.

•
Net favorable prior year reserve development occurred in all segments.
Catastrophe losses in the fourth quarter of 2017 included $656 million
pre-tax ($426 million after-tax) arising out of wildfires in
California, partially offset by favorable development of $157 million
pre-tax ($102 million after-tax) primarily related to the third
quarter 2017 hurricanes.

Net investment income of $601 million pre-tax ($467 million after-tax)
decreased 4%. Private equity returns remained strong but were lower than
the prior year quarter, while fixed income returns declined in line with
our expectations due to lower reinvestment rates available in the market.

Net written premiums of $6.424 billion increased 6%, reflecting growth
in all segments. Retention remained high and renewal premium change
improved across all segments, while new business increased in our
commercial businesses.

Full Year 2017 Results (All
comparisons vs. full year 2016, unless noted otherwise)

Net income of $2.056 billion after-tax decreased $958 million due to
lower core income and a $129 million charge related to the passage of
the TCJA, partially offset by higher net realized investment gains. Net
realized investment gains were $216 million pre-tax ($142 million
after-tax) in the current year, as compared to $68 million pre-tax ($47
million after-tax) in the prior year. Core income of $2.043 billion
after-tax decreased $924 million, primarily due to the impact of
significantly higher catastrophe losses, lower net favorable prior year
reserve development, a lower underlying underwriting gain (i.e.,
excluding net favorable prior year reserve development and catastrophe
losses) and a benefit in the prior year of $126 million pre-tax ($82
million after-tax) from the settlement of a reinsurance dispute. These
impacts to core income were partially offset by higher net investment
income. In addition, income tax expense in the current year was reduced
by $39 million as a result of the resolution of prior year tax matters.

•
The underlying combined ratio of 92.6% increased 1.0 point, primarily
driven by loss cost trends that modestly exceeded earned pricing in
Business Insurance, a high level of non-catastrophe fire-related
losses in Business Insurance and higher non-catastrophe
weather-related losses in Personal Insurance, partially offset by a
lower expense ratio.

•
Net favorable prior year reserve development occurred in all segments.
Catastrophe losses in 2017 primarily resulted from wildfires in
California, Hurricanes Harvey, Irma and Maria, and several winter,
wind and hail storms throughout the United States.

Net investment income of $2.397 billion pre-tax ($1.872 billion
after-tax) increased 4% driven by higher private equity returns,
partially offset by fixed income returns that declined in line with our
expectations due to lower reinvestment rates available in the market.

Record net written premiums of $26.219 billion increased 5% due to the
same factors described above for fourth quarter 2017.

The Company repurchased 2.6 million shares during the fourth quarter at
an average price of $133.69 per share for a total cost of $351 million.
Capacity remaining under the existing share repurchase authorization was
$4.556 billion at the end of the quarter. At the end of fourth quarter
2017, statutory capital and surplus was $20.448 billion and the ratio of
debt-to-capital was 21.7%. The ratio of debt-to-capital excluding
after-tax net unrealized investment gains included in shareholders
equity was 22.5%, within the Companys target range of 15% to 25%.

The Board of Directors today declared a quarterly dividend of $0.72 per
share. This dividend is payable on March 30, 2018, to shareholders of
record as of the close of business on March 9, 2018.

Segment income for Business Insurance was $637 million after-tax, a
decrease of $64 million, primarily driven by lower other income due to a
benefit in the prior year quarter of $126 million pre-tax ($82 million
after-tax) from the settlement of a reinsurance dispute.

Underwriting results:

--
The combined ratio of 88.6% was consistent with the prior year quarter.

•
Net favorable prior year reserve development primarily resulted from
better than expected loss experience in the segments domestic
operations in (i) the workers compensation product line for multiple
accident years and (ii) the commercial multi-peril product line for
multiple accident years, partially offset by (iii) higher than
expected loss experience in the commercial automobile product line for
recent accident years.

Net written premiums of $3.437 billion increased 5% and benefited from
higher renewal premium change, continued strong retention and an
increase in new business.

Full Year 2017 Results (All
comparisons vs. full year 2016, unless noted otherwise)

Segment income for Business Insurance was $1.613 billion after-tax, a
decrease of $369 million, primarily driven by significantly higher
catastrophe losses, lower other income due to a benefit in the prior
year of $126 million pre-tax ($82 million after-tax) from the settlement
of a reinsurance dispute and a lower underlying underwriting gain,
partially offset by higher net investment income. In addition, income
tax expense in the current year was reduced by $15 million as a result
of the resolution of prior year tax matters.

•
The underlying combined ratio of 94.9% increased 1.1 points, primarily
driven by the impact of loss cost trends that modestly exceeded earned
pricing and a high level of non-catastrophe fire-related losses,
partially offset by a lower expense ratio.

•
Net favorable prior year reserve development primarily resulted from
better than expected loss experience in the domestic (i) workers
compensation product line for multiple accident years, (ii) the
general liability product line (excluding an increase to asbestos and
environmental reserves) for both primary and excess coverages for
multiple accident years, (iii) the commercial multi-peril product line
for liability coverages for multiple accident years, partially offset
by (iv) a $225 million increase to asbestos reserves, (v) the impact
of higher than expected loss experience in the commercial automobile
product line for recent accident years and (vi) a $65 million increase
to environmental reserves. Net unfavorable prior year reserve
development in the segments international operations in Europe
primarily resulted from the UK Ministry of Justices "Ogden" discount
rate adjustment applied to lump sum bodily injury payouts.

Other income in the prior year included a $126 million pre-tax ($82
million after-tax) benefit from the settlement of a reinsurance dispute
and the favorable settlement of a claims-related legal matter.

Net written premiums of $14.270 billion increased 3% and benefited from
the same factors as described above for fourth quarter 2017.

Segment income for Bond & Specialty Insurance was $112 million
after-tax, a decrease of $60 million, primarily driven by a lower
underlying underwriting gain and lower net favorable prior year reserve
development.

Underwriting results:

•
The combined ratio of 83.7% increased 15.9 points due to a higher
underlying combined ratio (9.8 points) and lower net favorable prior
year reserve development (6.5 points), partially offset by favorable
development on catastrophe losses that occurred earlier in 2017 (0.4
points).

•
The underlying combined ratio of 91.1% increased 9.8 points, primarily
due to a charge for a single international surety loss.

•
Net favorable prior year reserve development resulted from better than
expected loss experience in the segments domestic operations in the
general liability product line for management liability coverages for
multiple accident years.

Net written premiums of $606 million increased 5%, reflecting an
increase in domestic surety premiums, continued strong retention,
improved renewal premium change and an increase in new business in
domestic management liability.

Full Year 2017 Results (All
comparisons vs. full year 2016, unless noted otherwise)

Segment income for Bond & Specialty Insurance was $556 million
after-tax, a decrease of $156 million, primarily driven by lower net
favorable prior year reserve development and a lower underlying
underwriting gain. In addition, income tax expense in the current year
was reduced by $17 million as a result of the resolution of prior year
tax matters.

•
The underlying combined ratio remained strong at 83.2% and increased
2.3 points, primarily due to a charge for a single international
surety loss.

•
Net favorable prior year reserve development resulted from better than
expected loss experience in the segments domestic operations in the
general liability product line for management liability coverages for
multiple accident years.

Net written premiums of $2.359 billion increased 4% and benefited from
the same factors as described above for fourth quarter 2017.

Segment loss for Personal Insurance of $50 million after-tax compared to
segment income of $107 million in the prior year quarter. The change was
due to significantly higher catastrophe losses, partially offset by a
higher underlying underwriting gain and net favorable prior year reserve
development compared to net unfavorable prior year reserve development
in the prior year quarter.

Underwriting results:

•
The combined ratio of 108.7% increased 10.7 points due to higher
catastrophe losses (15.8 points), partially offset by a lower
underlying combined ratio (3.2 points) and net favorable prior year
reserve development compared to net unfavorable prior year reserve
development in the prior year quarter (1.9 points).

•
The underlying combined ratio of 90.4% improved 3.2 points, primarily
driven by the timing impact in the prior year quarter of higher loss
estimates for auto bodily injury liability coverages and earned
pricing that exceeded loss cost trends in the current quarter,
partially offset by higher non-catastrophe weather-related losses. The
underlying combined ratio also benefited from a lower expense ratio.

Full Year 2017 Results (All
comparisons vs. full year 2016, unless noted otherwise)

Segment income for Personal Insurance was $128 million after-tax, a
decrease of $389 million, primarily driven by significantly higher
catastrophe losses, partially offset by higher net investment income, a
higher underlying underwriting gain and net favorable prior year reserve
development compared to net unfavorable prior year reserve development
in the prior year. In addition, income tax expense in the current year
was reduced by $7 million as a result of the resolution of prior year
tax matters.

•
The underlying combined ratio of 91.5% increased 0.6 points, primarily
driven by an increase in non-catastrophe weather-related losses and
the tenure impact of higher levels of new business in auto, partially
offset by earned pricing that modestly exceeded loss cost trends and a
lower expense ratio.

Net written premiums of $9.590 billion increased 9%, benefiting from the
same factors as described above for the fourth quarter 2017.

Financial Supplement and Conference Call

The information in this press release should be read in conjunction with
a financial supplement that is available on our website at www.travelers.com.
Travelers management will discuss the contents of this release and other
relevant topics via webcast at 9 a.m. Eastern (8 a.m. Central) on
Tuesday, January 23, 2018. Investors can access the call via webcast at http://investor.travelers.com
or by dialing 1-800-410-5148 within the U.S. and 1-303-223-4378 outside
the U.S. Prior to the webcast, a slide presentation pertaining to the
quarterly earnings will be available on the Companys website.

Following the live event, an audio playback of the webcast and the slide
presentation will be available on the same website. An audio playback
can also be accessed by phone at 1-800-633-8284 within the U.S. and
1-402-977-9140 outside the U.S. (use reservation 21875486 for both the
U.S. and international calls).

About Travelers

The Travelers Companies, Inc. (TRV) is a leading provider of
property casualty insurance for auto,
home
and business.
A component of the Dow Jones Industrial Average, Travelers has
approximately 30,000 employees and generated revenues of approximately
$29 billion in 2017. For more information, visit www.travelers.com.

Travelers may use its website and/or social media outlets, such as
Facebook and Twitter, as distribution channels of material Company
information. Financial and other important information regarding the
Company is routinely accessible through and posted on our website at http://investor.travelers.com,
our Facebook page at https://www.facebook.com/travelers
and our Twitter account (@Travelers) at https://twitter.com/travelers.
In addition, you may automatically receive email alerts and other
information about Travelers when you enroll your email address by
visiting the Email Notifications section at http://investor.travelers.com.

Travelers is organized into the following reportable business
segments:

Effective April 1, 2017, the Companys results are reported in the
following three business segments - Business Insurance, Bond & Specialty
Insurance and Personal Insurance, reflecting a change in the manner in
which the Companys businesses were being managed as of that date, as
well as the aggregation of products and services based on the type of
customer, how the business is marketed and the manner in which risks are
underwritten. While the segmentation of the Companys domestic
businesses was unchanged, the Companys international businesses, which
were previously managed and reported in total within the Business and
International Insurance segment, were disaggregated by product type
among the three newly aligned reportable business segments. All prior
periods presented have been reclassified to conform to this
presentation. In connection with these changes, the Company revised the
names and descriptions of certain businesses comprising the Companys
segments and has reflected other related changes.

Business Insurance - Business Insurance offers a broad array of
property and casualty insurance and insurance related services to its
customers, primarily in the United States, as well as in Canada, the
United Kingdom, the Republic of Ireland, Brazil and throughout other
parts of the world as a corporate member of Lloyds.

Bond & Specialty Insurance - Bond & Specialty Insurance
provides surety, fidelity, management liability, professional liability,
and other property and casualty coverages and related risk management
services to its customers in the United States, and certain specialty
insurance products in Canada, the United Kingdom, the Republic of
Ireland and Brazil, utilizing various degrees of financially-based
underwriting approaches.

Personal Insurance - Personal Insurance writes a broad range of
property and casualty insurance covering individuals personal risks,
primarily in the United States, as well as in Canada. The primary
products of automobile and homeowners insurance are complemented by a
broad suite of related coverages.

* * * * *

Forward-Looking Statements

This press release contains, and management may make, certain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than
statements of historical facts, may be forward-looking statements. Words
such as "may," "will," "should," "likely," "anticipates," "expects,"
"intends," "plans," "projects," "believes," "estimates" and similar
expressions are used to identify these forward-looking statements. These
statements include, among other things, the Companys statements about:

•
the Companys outlook and its future results of operations and
financial condition (including, among other things, anticipated
premium volume, premium rates, margins, net and core income,
investment income and performance, loss costs, return on equity, core
return on equity and expected current returns and combined ratios);

--
share repurchase plans;

--
future pension plan contributions;

--
the sufficiency of the Companys asbestos and other reserves;

•
the impact of emerging claims issues as well as other insurance and
non-insurance litigation;

•
strategic and operational initiatives to improve profitability and
competitiveness, and competitive advantages;

--
new product offerings; and

--
the impact of the Companys acquisition of Simply Business.

The Company cautions investors that such statements are subject to risks
and uncertainties, many of which are difficult to predict and generally
beyond the Companys control, that could cause actual results to differ
materially from those expressed in, or implied or projected by, the
forward-looking information and statements.

Some of the factors that could cause actual results to differ include,
but are not limited to, the following:

•
catastrophe losses could materially and adversely affect the Companys
results of operations, its financial position and/or liquidity, and
could adversely impact the Companys ratings, the Companys ability to
raise capital and the availability and cost of reinsurance;

•
if actual claims exceed the Companys claims and claim adjustment
expense reserves, or if changes in the estimated level of claims and
claim adjustment expense reserves are necessary, including as a result
of, among other things, changes in the legal, regulatory and economic
environments in which the Company operates, the Companys financial
results could be materially and adversely affected;

•
during or following a period of financial market disruption or an
economic downturn, the Companys business could be materially and
adversely affected;

•
the Companys investment portfolio is subject to credit risk, and may
suffer material realized or unrealized losses. The Companys
investment portfolio may also suffer reduced or low returns,
particularly if interest rates remain at historically low levels for a
prolonged period of time or decline further as a result of actions
taken by central banks (a risk which potentially could be increased
by, among other things, the United Kingdoms withdrawal from the
European Union);

•
the Companys business could be harmed because of its potential
exposure to asbestos and environmental claims and related litigation;

•
the intense competition that the Company faces, and the impact of
innovation, technological change and changing customer preferences on
the insurance industry and the markets in which it operates, could
harm its ability to maintain or increase its business volumes and its
profitability;

•
disruptions to the Companys relationships with its independent agents
and brokers or the Companys inability to manage effectively a
changing distribution landscape could adversely affect the Company;

•
the Company is exposed to, and may face adverse developments
involving, mass tort claims such as those relating to exposure to
potentially harmful products or substances;

•
the effects of emerging claim and coverage issues on the Companys
business are uncertain;

•
the Company may not be able to collect all amounts due to it from
reinsurers, reinsurance coverage may not be available to the Company
in the future at commercially reasonable rates or at all and we are
exposed to credit risk related to our structured settlements;

•
the Company is also exposed to credit risk in certain of its insurance
operations and with respect to certain guarantee or indemnification
arrangements that we have with third parties;

•
within the United States, the Companys businesses are heavily
regulated by the states in which it conducts business, including
licensing, market conduct and financial supervision, and changes in
regulation may reduce the Companys profitability and limit its growth;

•
a downgrade in the Companys claims-paying and financial strength
ratings could adversely impact the Companys business volumes,
adversely impact the Companys ability to access the capital markets
and increase the Companys borrowing costs;

•
the inability of the Companys insurance subsidiaries to pay dividends
to the Companys holding company in sufficient amounts would harm the
Companys ability to meet its obligations, pay future shareholder
dividends and/or make future share repurchases;

•
the Companys efforts to develop new products, expand in targeted
markets, or improve business processes and workflows may not be
successful and may create enhanced risks;

•
the Company may be adversely affected if its pricing and capital
models provide materially different indications than actual results;

•
the Companys business success and profitability depend, in part, on
effective information technology systems and on continuing to develop
and implement improvements in technology, particularly as our business
processes become more digital;

•
if the Company experiences difficulties with technology, data and
network security (including as a result of cyber attacks), outsourcing
relationships, or cloud-based technology, the Companys ability to
conduct its business could be negatively impacted;

•
the Company is also subject to a number of additional risks associated
with its business outside the United States, including foreign
currency exchange fluctuations and restrictive regulations, as well as
the risks and uncertainties associated with the United Kingdoms
withdrawal from the European Union;

•
regulatory changes outside of the United States, including in Canada,
the United Kingdom and the European Union, could adversely impact the
Companys results of operations and limit its growth;

•
loss of or significant restrictions on the use of particular types of
underwriting criteria, such as credit scoring, or other data or
methodologies, in the pricing and underwriting of the Companys
products could reduce the Companys future profitability;

•
acquisitions and integration of acquired businesses may result in
operating difficulties and other unintended consequences;

•
the Company could be adversely affected if its controls designed to
ensure compliance with guidelines, policies and legal and regulatory
standards are not effective;

•
the Companys businesses may be adversely affected if it is unable to
hire and retain qualified employees;

•
intellectual property is important to the Companys business, and the
Company may be unable to protect and enforce its own intellectual
property or the Company may be subject to claims for infringing the
intellectual property of others;

•
changes in federal regulation could impose significant burdens on the
Company and otherwise adversely impact the Companys results;

Our forward-looking statements speak only as of the date of this press
release or as of the date they are made, and we undertake no obligation
to update forward-looking statements. For a more detailed discussion of
these factors, see the information under the captions "Risk Factors" and
"Managements Discussion and Analysis of Financial Condition and Results
of Operations" in our most recent annual report on Form 10-K filed with
the Securities and Exchange Commission (SEC) on February 16, 2017, as
updated by our periodic filings with the SEC.

*****

GLOSSARY OF FINANCIAL MEASURES AND RECONCILIATIONS OF GAAP MEASURES
TO NON-GAAP MEASURES

The following measures are used by the Companys management to evaluate
financial performance against historical results and establish targets
on a consolidated basis. In some cases, these measures are considered
non-GAAP financial measures under applicable SEC rules because they are
not displayed as separate line items in the consolidated financial
statements or are not required to be disclosed in the notes to financial
statements or, in some cases, include or exclude certain items not
ordinarily included or excluded in the most comparable GAAP financial
measure. Reconciliations of these measures to the most comparable GAAP
measures also follow.

In the opinion of the Companys management, a discussion of these
measures provides investors, financial analysts, rating agencies and
other financial statement users with a better understanding of the
significant factors that comprise the Companys periodic results of
operations and how management evaluates the Companys financial
performance. Internally, the Companys management uses these measures to
evaluate performance against historical results, to establish financial
targets on a consolidated basis and for other reasons, which are
discussed below.

Some of these measures exclude net realized investment gains (losses),
net of tax, and/or net unrealized investment gains (losses), net of tax,
included in shareholders equity, which can be significantly impacted by
both discretionary and other economic factors and are not necessarily
indicative of operating trends.

Other companies may calculate these measures differently, and,
therefore, their measures may not be comparable to those used by the
Companys management.

RECONCILIATION OF NET INCOME TO CORE INCOME AND CERTAIN OTHER
NON-GAAP MEASURES

Core income (loss) is consolidated net income (loss) excluding
the after-tax impact of net realized investment gains (losses),
discontinued operations, the effect of a change in tax laws and tax
rates at enactment date, and cumulative effect of changes in accounting
principles when applicable. Segment income (loss) is determined
in the same manner as core income (loss) on a segment basis. Management
uses segment income (loss) to analyze each segments performance and as
a tool in making business decisions. Financial statement users also
consider core income when analyzing the results and trends of insurance
companies. Core income (loss) per share is core income (loss) on a per
common share basis.

Reconciliation of Net Income to Core Income less Preferred

Dividends

Three Months Ended

Twelve Months Ended

December 31,

December 31,

($ in millions, after-tax)

2017

2016

2017

2016

Net income

$

551

$

943

$

2,056

$

3,014

Adjustments:

Net realized investment gains

(47 )

(24 )

(142 )

(47 )

Impact of TCJA at enactment

129

-

129

-

Core income

$

633

$

919

$

2,043

$

2,967

Three Months Ended

Twelve Months Ended

December 31,

December 31,

($ in millions)

2017

2016

2017

2016

Net income

$

551

$

943

$

2,056

$

3,014

Income tax expense

309

359

674

1,039

Income before income taxes

860

1,302

2,730

4,053

Adjustments:

Net realized investment gains, pre-tax

(70 )

(35 )

(216 )

(68 )

Core income before income taxes

$

790

$

1,267

$

2,514

$

3,985

Twelve Months Ended December 31,

($ in millions, after-tax)

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

Net income

$

2,056

$

3,014

$

3,439

$

3,692

$

3,673

$

2,473

$

1,426

$

3,216

$

3,622

$

2,924

$

4,601

$

4,208

$

1,622

Less: Loss from discontinued operations

-

-

-

-

-

-

-

-

-

-

-

-

(439 )

Income from continuing operations

2,056

3,014

3,439

3,692

3,673

2,473

1,426

3,216

3,622

2,924

4,601

4,208

2,061

Adjustments:

Net realized investment (gains)/losses

(142 )

(47 )

(2 )

(51 )

(106 )

(32 )

(36 )

(173 )

(22 )

271

(101 )

(8 )

(35 )

Impact of TCJA at enactment

129

-

-

-

-

-

-

-

-

-

-

-

-

Core income

2,043

2,967

3,437

3,641

3,567

2,441

1,390

3,043

3,600

3,195

4,500

4,200

2,026

Less: Preferred dividends

-

-

-

-

-

-

1

3

3

4

4

5

6

Core income, less preferred dividends

$

2,043

$

2,967

$

3,437

$

3,641

$

3,567

$

2,441

$

1,389

$

3,040

$

3,597

$

3,191

$

4,496

$

4,195

$

2,020

Reconciliation of Net Income per Share to Core Income per Share

on a Basic and Diluted Basis

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2017

2016

2017

2016

Basic income per share

Net income

$

2.00

$

3.32

$

7.39

$

10.39

Adjustments:

Net realized investment gains, after-tax

(0.17 )

(0.09 )

(0.51 )

(0.17 )

Impact of TCJA at enactment

0.47

-

0.47

-

Core income

$

2.30

$

3.23

$

7.35

$

10.22

Diluted income per share

Net income

$

1.98

$

3.28

$

7.33

$

10.28

Adjustments:

Net realized investment gains, after-tax

(0.17 )

(0.08 )

(0.51 )

(0.16 )

Impact of TCJA at enactment

0.47

-

0.46

-

Core income

$

2.28

$

3.20

$

7.28

$

10.12

Reconciliation of Segment Income to Total Core Income

Three Months Ended

Twelve Months Ended

December 31,

December 31,

($ in millions, after-tax)

2017

2016

2017

2016

Business Insurance

$

637

$

701

$

1,613

$

1,982

Bond & Specialty Insurance

112

172

556

712

Personal Insurance

(50 )

107

128

517

Total segment income

699

980

2,297

3,211

Interest Expense and Other

(66 )

(61 )

(254 )

(244 )

Total core income

$

633

$

919

$

2,043

$

2,967

RECONCILIATION OF SHAREHOLDERS EQUITY TO ADJUSTED SHAREHOLDERS
EQUITY AND CALCULATION OF RETURN ON EQUITY AND CORE RETURN ON EQUITY

Return on equity is the ratio of annualized net income less
preferred dividends to average shareholders equity for the periods
presented. Core return on equity is the ratio of annualized core
income less preferred dividends to adjusted average shareholders equity
for the periods presented. In the opinion of the Companys management,
these are important indicators of how well management creates value for
its shareholders through its operating activities and its capital
management.

Average shareholders equity is (a) the sum of total
shareholders equity excluding preferred stock at the beginning and end
of each of the quarters for the period presented divided by (b) the
number of quarters in the period presented times two. Adjusted
average shareholders equity is (a) the sum of adjusted
shareholders equity at the beginning and end of each of the quarters
for the period presented divided by (b) the number of quarters in the
period presented times two.

Calculation of Return on Equity and Core Return on Equity

Three Months Ended

Twelve Months Ended

December 31,

December 31,

($ in millions, after-tax)

2017

2016

2017

2016

Annualized net income

$

2,202

$

3,773

$

2,056

$

3,014

Average shareholders equity

23,735

23,830

23,671

24,182

Return on equity

9.3 %

15.8 %

8.7 %

12.5 %

Annualized core income

$

2,530

$

3,675

$

2,043

$

2,967

Adjusted average shareholders equity

22,795

22,428

22,743

22,386

Core return on equity

11.1 %

16.4 %

9.0 %

13.3 %

Average annual core return on equity over a period is the ratio
of: a) the sum of core income less preferred dividends for the
periods presented to b) the sum of: 1) the sum of the adjusted
average shareholders equity for all full years in the period presented,
and 2) for partial years in the period presented, the number of quarters
in that partial year divided by four, multiplied by the adjusted average
shareholders equity of the partial year.

Underwriting gain/(loss) is net earned premiums and fee income
less claims and claim adjustment expenses and insurance-related
expenses. In the opinion of the Companys management, it is important to
measure the profitability of each segment excluding the results of
investing activities, which are managed separately from the insurance
business. This measure is used to assess each segments business
performance and as a tool in making business decisions. Pre-tax underwriting
gain, excluding the impact of catastrophes and net favorable prior year
loss reserve development, is the underwriting gain adjusted to
exclude claims and claim adjustment expenses, reinstatement premiums and
assessments related to catastrophes and loss reserve development related
to time periods prior to the current year. In the opinion of the
Companys management, this measure is meaningful to users of the
financial statements to understand the Companys periodic earnings and
the variability of earnings caused by the unpredictable nature (i.e.,
the timing and amount) of catastrophes and loss reserve development.
This measure is also referred to as underlying underwriting margin
or underlying underwriting gain.

A catastrophe is a severe loss designated a catastrophe by
internationally recognized organizations that track and report on
insured losses resulting from catastrophic events, such as Property
Claim Services (PCS) for events in the United States and Canada.
Catastrophes can be caused by various natural events, including, among
others, hurricanes, tornadoes and other windstorms, earthquakes, hail,
wildfires, severe winter weather, floods, tsunamis, volcanic eruptions
and other naturally occurring events, such as solar flares. Catastrophes
can also be man-made, such as terrorist attacks and other intentionally
destructive acts including those involving nuclear, biological, chemical
or radiological events, cyber attacks, explosions and infrastructure
failures. Each catastrophe has unique characteristics and catastrophes
are not predictable as to timing or amount. Their effects are included
in net and core income and claims and claim adjustment expense reserves
upon occurrence. A catastrophe may result in the payment of reinsurance
reinstatement premiums and assessments from various pools.

The Companys threshold for disclosing catastrophes is primarily
determined at the reportable segment level. If a threshold for one
segment or a combination thereof is exceeded and the other segments have
losses from the same event, losses from the event are identified as
catastrophe losses in the segment results and for the consolidated
results of the Company. Additionally, an aggregate threshold is applied
for international business across all reportable segments. The threshold
for 2017 ranged from approximately $17 million to $30 million of losses
before reinsurance and taxes.

Net favorable (unfavorable) prior year loss reserve development
is the increase or decrease in incurred claims and claim adjustment
expenses as a result of the re-estimation of claims and claim adjustment
expense reserves at successive valuation dates for a given group of
claims, which may be related to one or more prior years. In the opinion
of the Companys management, a discussion of loss reserve development is
meaningful to users of the financial statements as it allows them to
assess the impact between prior and current year development on incurred
claims and claim adjustment expenses, net and core income (loss), and
changes in claims and claim adjustment expense reserve levels from
period to period.

Components of Net Income

Three Months Ended

Twelve Months Ended

December 31,

December 31,

($ in millions, after-tax except as noted)

2017

2016

2017

2016

Pre-tax underwriting gain excluding the impact of catastrophes

and net favorable prior year loss reserve development

$

472

$

463

$

1,761

$

1,920

Pre-tax impact of catastrophes

(499 )

(137 )

(1,949 )

(877 )

Pre-tax impact of net favorable prior year loss reserve development

293

264

592

771

Pre-tax underwriting gain

266

590

404

1,814

Income tax expense on underwriting results

50

197

54

615

Underwriting gain

216

393

350

1,199

Net investment income

467

493

1,872

1,846

Other income/(expense), including interest expense

(50 )

33

(179 )

(78 )

Core income

633

919

2,043

2,967

Net realized investment gains

47

24

142

47

Impact of TCJA at enactment

(129 )

-

(129 )

-

Net income

$

551

$

943

$

2,056

$

3,014

COMBINED RATIO AND ADJUSTMENTS FOR UNDERLYING COMBINED RATIO

Combined ratio: For Statutory Accounting Practices (SAP), the
combined ratio is the sum of the SAP loss and LAE ratio and the SAP
underwriting expense ratio as defined in the statutory financial
statements required by insurance regulators. The combined ratio as used
in this earnings release is the equivalent of, and is calculated in the
same manner as, the SAP combined ratio except that the SAP underwriting
expense ratio is based on net written premiums and the
underwriting expense ratio as used in this earnings release is based on
net earned premiums.

For SAP, the loss and LAE ratio is the ratio of incurred losses and loss
adjustment expenses less certain administrative services fee income to
net earned premiums as defined in the statutory financial statements
required by insurance regulators. The loss and LAE ratio as used in this
earnings release is calculated in the same manner as the SAP ratio.

For SAP, the underwriting expense ratio is the ratio of underwriting
expenses incurred (including commissions paid), less certain
administrative services fee income and billing and policy fees, to net written
premiums as defined in the statutory financial statements required by
insurance regulators. The underwriting expense ratio as used in this
earnings release, is the ratio of underwriting expenses (including the
amortization of deferred acquisition costs), less certain administrative
services fee income, billing and policy fees and other, to net earned
premiums.

The combined ratio, loss and LAE ratio, and underwriting expense ratio
are used as indicators of the Companys underwriting discipline,
efficiency in acquiring and servicing its business and overall
underwriting profitability. A combined ratio under 100% generally
indicates an underwriting profit. A combined ratio over 100% generally
indicates an underwriting loss.

Underlying combined ratio represents the combined ratio excluding
the impact of net prior year reserve development and catastrophes. The
underlying combined ratio is an indicator of the Companys underwriting
discipline and underwriting profitability for the current accident year.

Other companies method of computing similarly titled measures may not
be comparable to the Companys method of computing these ratios.

Calculation of the Combined Ratio

Three Months Ended

Twelve Months Ended

December 31,

December 31,

($ in millions, pre-tax)

2017

2016

2017

2016

Loss and loss adjustment expense ratio

Claims and claim adjustment expenses

$

4,342

$

3,740

$

17,467

$

15,070

Less:

Policyholder dividends

13

16

51

48

Allocated fee income

36

35

162

168

Loss ratio numerator

$

4,293

$

3,689

$

17,254

$

14,854

Underwriting expense ratio

Amortization of deferred acquisition costs

$

1,072

$

1,013

$

4,166

$

3,985

General and administrative expenses (G&A)

1,084

1,048

4,170

4,154

Less:

Non-insurance G&A

33

8

77

31

Allocated fee income

69

71

285

290

Billing and policy fees and other

21

22

88

89

Expense ratio numerator

$

2,033

$

1,960

$

7,886

$

7,729

Earned premium

$

6,626

$

6,277

$

25,683

$

24,534

Combined ratio (1)

Loss and loss adjustment expense ratio

64.8 %

58.8 %

67.2 %

60.5 %

Underwriting expense ratio

30.7 %

31.2 %

30.7 %

31.5 %

Combined ratio

95.5 %

90.0 %

97.9 %

92.0 %

(1)For purposes of computing ratios, billing and policy

fees and other (which are a component of other revenues) are

allocated as a reduction of underwriting expenses. In addition, fee

income is allocated as a reduction of losses and loss adjustment

expenses and underwriting expenses. In addition, G&A include

non-insurance expenses that are excluded from underwriting expenses,

and accordingly are excluded in calculating the combined ratio.

RECONCILIATION OF BOOK VALUE PER SHARE AND SHAREHOLDERS EQUITY TO
CERTAIN NON-GAAP MEASURES

Book value per share is total common shareholders equity divided
by the number of common shares outstanding. Adjusted book value per
share is total common shareholders equity excluding net unrealized
investment gains and losses, net of tax, included in shareholders
equity, divided by the number of common shares outstanding. In
the opinion of the Companys management, adjusted book value per share
is useful in an analysis of a property casualty companys book value per
share as it removes the effect of changing prices on invested assets
(i.e., net unrealized investment gains (losses), net of tax), which do
not have an equivalent impact on unpaid claims and claim adjustment
expense reserves. Tangible book value per share is adjusted book
value per share excluding the after-tax value of goodwill and other
intangible assets divided by the number of common shares outstanding. In
the opinion of the Companys management, tangible book value per share
is useful in an analysis of a property casualty companys book value on
a nominal basis as it removes certain effects of purchase accounting
(i.e., goodwill and other intangible assets), in addition to the effect
of changing prices on invested assets.

Reconciliation of Shareholders Equity to Tangible

Shareholders Equity, Excluding Net Unrealized Investment Gains,

Net of Tax

As of

December 31,

December 31,

($ in millions, except per share amounts)

2017

2016

Shareholders equity

$

23,731

$

23,221

Less: Net unrealized investment gains, net of tax, included in

1,112

730

shareholders equity

Shareholders equity, excluding net unrealized investment

22,619

22,491

gains, net of tax, included in shareholders equity

Less:

Goodwill

3,951

3,580

Other intangible assets

342

268

(44 )

(64 )

Impact of deferred tax on other intangible assets

Tangible shareholders equity

$

18,370

$

18,707

Common shares outstanding

271.4

279.6

Book value per share

$

87.46

$

83.05

Adjusted book value per share

83.36

80.44

Tangible book value per share

67.70

66.91

RECONCILIATION OF TOTAL CAPITALIZATION TO TOTAL CAPITALIZATION
EXCLUDING NET UNREALIZED INVESTMENT GAINS, NET OF TAX

Total capitalization is the sum of total shareholders equity and
debt. Debt-to-capital ratio excluding net unrealized gain on
investments, net of tax, included in shareholders equity, is the
ratio of debt to total capitalization excluding the after-tax impact of
net unrealized investment gains and losses included in shareholders
equity. In the opinion of the Companys management, the debt-to-capital
ratio is useful in an analysis of the Companys financial leverage.

As of

December 31,

December 31,

($ in millions)

2017

2016

Debt

$

6,571

$

6,437

Shareholders equity

23,731

23,221

Total capitalization

30,302

29,658

Less: Net unrealized investment gains, net of tax, included in

1,112

730

shareholders equity

Total capitalization excluding net unrealized gain

$

29,190

$

28,928

on investments, net of tax, included in shareholders equity

Debt-to-capital ratio

21.7 %

21.7 %

Debt-to-capital ratio excluding net unrealized investment gains,

22.5 %

22.3 %

net of tax, included in shareholders equity

OTHER DEFINITIONS

Gross written premiums reflect the direct and assumed
contractually determined amounts charged to policyholders for the
effective period of the contract based on the terms and conditions of
the insurance contract. Net written premiums reflect gross
written premiums less premiums ceded to reinsurers.

For Business Insurance and Bond & Specialty Insurance, retention
is the amount of premium available for renewal that was retained,
excluding rate and exposure changes. For Personal Insurance, retention
is the ratio of the expected number of renewal policies that will be
retained throughout the annual policy period to the number of available
renewal base policies. For all of the segments, renewal rate change
represents the estimated change in average premium on policies that
renew, excluding exposure changes. Exposure is the measure of
risk used in the pricing of an insurance product. The change in exposure
is the amount of change in premium on policies that renew attributable
to the change in portfolio risk. Renewal premium change
represents the estimated change in average premium on policies that
renew, including rate and exposure changes. New business is the
amount of written premium related to new policyholders and additional
products sold to existing policyholders. These are operating statistics,
which are in part dependent on the use of estimates and are therefore
subject to change. For Business Insurance, retention, renewal premium
change and new business exclude National Accounts and surety. For Bond &
Specialty Insurance, retention, renewal premium change and new business
exclude surety.

Statutory capital and surplus represents the excess of an
insurance companys admitted assets over its liabilities, including loss
reserves, as determined in accordance with statutory accounting
practices.

Holding company liquidity is the total funds available at the
holding company level to fund general corporate purposes, primarily the
payment of shareholder dividends and debt service. These funds consist
of total cash, short-term invested assets and other readily marketable
securities held by the holding company.

For a glossary of other financial terms used in this press release, we
refer you to the Companys most recent annual report on Form 10-K filed
with the SEC on February 16, 2017, as updated by our Form 8-K filed on
October 19, 2017, and subsequent periodic filings with the SEC.